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Chapter 11 Bankruptcy


Chapter 11 Business Bankruptcy Case Basics
Upon filing a petition for a business in Chapter 11 bankruptcy the debtor assumes a new role as “debtor in possession” 11 U.S.C. 1101. This term means a debtor who keeps control and possession of assets while continuing to operate a business and attempting a reorganization (read as shedding debt or avoiding or adjusting other obligations the business is liable for).
The filing of a Chapter 11 case makes the debtor in possession a fiduciary. This means they are essentially the trustee for their own bankruptcy case, which in turn means the principals must run the business in a legitimate way and perform various duties such as accounting for assets, objection to claims, investigating preferences, filing operating reports and filing tax returns. 11 U.S.C. 1106, 1107.
Like in consumer cases the filing of a Chapter 11 for a business imposes an automatic stay against creditors. They are prevented from continuing lawsuits, engaging in other collection activities, evicting the debtor on a lease, or basically enforcing any pre-filing obligation that the business may have had. 11 U.S.C. 362. There are exceptions and motions may be made for relief from the automatic stay. A common objection is one by a secured creditor who seeks to enforce or foreclose on the secured property by arguing that the debtor has no equity in the property and that the property is not necessary for an effective reorganization. 11 U.S.C. 362(d). It is sometimes necessary for a debtor to “adequately” protect such creditors by making cash payments or giving new liens.
A debtor may use, sell, or lease (lend) cash collateral during the case only with the consent of all creditors who are secured thereby, or with prior approval of the court. Other types of property, that is property that is not secured, may generally be used , sold or pledged only the ordinary course of business.
 
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